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Barriers to genuine service collaboration with OEMs are hurting hospitals

May 14, 2019
From the May 2019 issue of HealthCare Business News magazine

Recent articles and documentaries have illustrated the paucity of objective comparative data in the clinical equipment and device markets, a deficit not present in the pharmaceutical industry which, for all of its well-published problems, lives and dies based on its objective comparative effectiveness. The successful efforts of the OEMs and their lobbying agents to continue to leverage 510K approvals, which emphasize predicate devices to lower the burden of proof for FDA approvals while contractually increasing the cost of the equipment so approved, emphasizes the focus on maintain or increasing the average selling price of the equipment. In many ways, this is the residual impact of fee-for-service, where the only thing of consequence is the ability to turn the equipment on for the test. The lingering impact of fee-for-service on the manufacturer’s addiction to top-line revenue growth is, along with the absence of effective comparative effectiveness, an addiction that creates very specific issues in the HTM market.

The HTM market is made up, disproportionally, of three primary options: OEM services, in-house services (which include variable use of OEMs), and third-party outsourced services. Of the three options, the only one to provide a significantly different commercial offering is the in-house option, as it does not internally margin its own labor. The OEM, however, broadly uses its services organization as a supplemental source of highly margined revenue. It is easy to understand the motivating factors when one realizes the average length of time between replacements of an MRI and CT Scanners is pushing past 14 years; OEMs are looking to drive continuous revenue from each slot to defray reductions in purchases caused by concerns of over-testing and more personal financial responsibility for patients. The recent efforts of the OEMs, through MITA, to conflate issues related to smaller and less sophisticated Independent Service Organizations (ISOs) into a broader discussion related to an increase in safety concerns related to service points out how misaligned providers and suppliers are on prioritization. As ECRI so ably demonstrated, the evidence not only did not support the OEM and MITA claims, the incidence of error (already statistically immaterial) was decreasing. This misalignment has continued in recent lawsuits where OEMs are making significant claims as to their lack of monopolistic control of the services space, claiming that third-party training on OEM-level equipment is functionally the equivalent of OEM training. It is disingenuous when MITA claims differentiated value from OEM service on one hand and OEMs claiming agnostic equivalence of training in order to avoid antitrust concerns. The key point to all of these issues is misaligned goals that target isolated benefits instead of collective value.

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